Trouble in Paradise ...caribbean airline news

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Trouble in Paradise
Newsday 06.13.03

Can the struggling Caribbean air transport industry set aside internal=20
squabbles and find a recipe for success in the face of increasing US=20
competition?  Boasting crystal clear waters, white sandy beaches, lush=20
vegetation and breathtaking sunsets, the Caribbean has long been a sunspot=
=20
of choice for European and US leisure travellers. Even in the aftermath of=
=20
September 11 2001, the Caribbean=92s closeness to the US mainland and its=20
accessibility by air from most major US gateways saw American tourists=20
continue to flock there, albeit in fewer numbers. In contrast, the=20
Caribbean saw a steeper drop-off in European traffic during the same=20
period. By early February 2003, however, the Caribbean Tourism Organisation=
=20
was predicting that tourism would this year recover to 200 levels and=20
resume real growth in 2004 =97 barring a war in Iraq.

US airlines, however, are optimistic that the Caribbean will continue to be=
=20
one of the fastest growing segments in the industry. Even as they bleed red=
=20
ink, carriers such as American Eagle Airlines, Delta Air Lines and US=20
Airways are expanding services to the Caribbean. US-owned regional start-up=
=20
Caribbean Sun Airlines, a sister to Antigua-based Caribbean Star Airlines,=
=20
is injecting competition into the market by initiating services from San=20
Juan, Puerto Rico to several Caribbean islands. While US carriers turn to=20
the Caribbean for growth, the region=92s own airlines =97 which for years=
 have=20
gone from one financial crisis to another =97 are downsizing, citing=20
increased security, insurance and fuel costs, as well as the softening in=20
the market. Caribbean international carriers, including Air Jamaica,=20
Bahamasair and BWIA West Indies Airways, as well as regional Liat, all seek=
=20
government assistance. In addition, says Trinidad and Tobago-based BWIA, US=
=20
majors are =93dumping capacity into the Caribbean=94, and discounting fares=
 to=20
a level that makes it difficult to compete. No North American carrier has=20
grown its Caribbean service more quickly in 2002 than US Airways. In the=20
past few months, the carrier, which has just emerged from Chapter 11=20
bankruptcy, has introduced services to the Bahamas, the Dominican Republic=
=20
and Puerto Rico and boosted frequencies on several USA-Caribbean routes.

The airline is also gradually building an intra-Caribbean operation, the=20
GoCaribbean network, which includes marketing agreements with Dutch=20
Antilles carrier Winair and Caribbean Star. US Airways declines to say if a=
=20
codeshare with Caribbean Sun is in prospect. Such a partnership, however,=20
would boost the US major=92s chances to compete against American Airlines=
 and=20
its American Eagle subsidiary, the dominant regional carrier in the=20
Caribbean. St Kitts and Nevis-based Nevis Express was also involved in=20
GoCaribbean until financial difficulties forced it to slash its operations=
=20
and pull out of the grouping in December 2002. Doug Leonard, US Airways=20
vice-president, international, says: =93A lot of people who live on the East=
=20
Coast take their leisure trips to the Caribbean, so it is natural for us to=
=20
grow our eastern-focused network down to the Caribbean. We break our=20
business into three pieces, domestic, Caribbean and the Atlantic, and of=20
those, the Caribbean was the best performer for the last year. We did carry=
=20
reasonably high loads, probably mid-70 percentile, and we did pretty well=20
on the yields compared to what we were seeing throughout the rest of the=20
network.=94 US Airways does not intend to shelve its planned new services to=
=20
the Caribbean, including flights to Bermuda next month.

Dominant regional

Delta, meanwhile, has initiated an assault on US Airways by increasing=20
services to the Caribbean and Florida. To boost its winter schedule, the=20
carrier expanded services from its Atlanta to Providenciales in the Turks=20
and Caicos, and from New York Kennedy to Aruba. It also added capacity on=20
its Aruba-Atlanta and Nassau, Bahamas-Cincinnati, Ohio routes. Continental=
=20
Airlines and Northwest Airlines also are increasing flights to the=20
Caribbean. Keen to keep its edge in the Caribbean, American Eagle =97 whose=
=20
Executive Airlines unit has hubs in Miami and San Juan =97 continues to=20
expand. It will add services between San Juan and Nevis from May 15, to=20
fill the void left by Nevis Express. The regional is also negotiating with=
=20
Puerto Rico to open year-round services to Vieques by mid-year. Plans are=20
in place to expand services to Nassau and add charters to Cuba. American=20
Eagle hopes to initiate flights between San Juan and Georgetown, Guyana,=20
via Port-of-Spain, Trinidad, as well as on a San=20
Juan-Port-of-Spain-Suriname-Guyana routing. =93Because of the war, this=20
summer people are coming to the Caribbean. People believe the Caribbean is=
=20
safe because it is close to the mainland USA,=94 says Pedro Fabregas,=20
director of sales, marketing and planning for American Eagle=92s operations=
=20
in Florida and the Caribbean.

By the end of this year, American Eagle will retire its 16 ATR 42s and=20
increase utilisation of its 48 ATR 72s. Eventually, says Fabregas, American=
=20
Eagle plans to acquire regional jets =93that can seat 70 passengers, but=20
which have capacity for 100=94, noting that Caribbean nationals haul large=
=20
amounts of luggage back and forth. For some Caribbean carriers, the=20
continued expansion by US airlines to the Caribbean has proved to be a=20
double-edged sword at a time when international traffic is down as much as=
=20
20 percent. Increased US flights mean more feed to Caribbean regional, but=
=20
it spells more competition to the area=92s international carriers. =93The US=
=20
carriers can afford to deeply discount fares to the Caribbean to get new=20
revenues. So while they can go after the cash revenue of low fares, what=20
they are doing is eroding a bedrock of a fares base that BWIA operates on.=
=20
As a national carrier, our hands are tied,=94 says BWIA.

Safety handicaps

Exacerbating BWIA=92s position is the fact that Trinidad and Tobago is=20
designated Category 2 under the US Federal Aviation Administra-tion=92s=20
International Airlines Safety Assessment Programme, meaning the country=92s=
=20
civil aviation authority does not meet ICAO safety standards. As a result,=
=20
BWIA is restricted from expanding its services to the mainland USA,=20
changing equipment on Caribbean-USA routes or developing its codeshare with=
=20
United Airlines, making competition against US carriers =93a one-handed=20
fight=94, says BWIA. Also hurting from a Category 2 rating is the=20
Organisation of Eastern Caribbean States (OECS), which comprises Anguilla,=
=20
Antigua and Barbuda, the British Virgin Islands, Dom-inica, Grenada, St=20
Kitts and Nevis, St Lucia, and St Vincent and the Grenadines. To regain=20
Category 1 status, the grouping must upgrade its Directorate of Civil=20
Aviation (DCA) office to an official authority vested with much greater=20
power to regulate and manage the OECS civil aviation system. The island=20
members must also harmonise their aviation legislation, most agreeing to=20
switch over from a UK regulatory model to one that mimics Transport Canada.=
=20
Without a Category 1 rating, the OECS is also prevented from entering into=
=20
fruitful discussion with the USA about an open skies agreement.

=93The OECS is using Great Britain=92s CAA rules and regulations, which are=
 not=20
bad rules if you=92re flying a Boeing 747 in bad weather between Iceland and=
=20
England. But that same set of rules don=92t work for flying a Britten-Norman=
=20
Islander between two islands with nine passengers or less,=94 says Nevis=20
Express president Allen Hadaddi. But the OECS=92s transition to a civil=20
aviation authority has proven time consuming, much to the dismay of even=20
the smallest Caribbean operators. SVG Air, a charter and scheduled operator=
=20
at Saint Vincent and the Grenadines, wants to expand to the USA, but its=20
plans are stifled. =93We have three (Rockwell) Commanders, two Cessna 402s,=
=20
three (Britten-Norman) Islanders and one (DHC) Twin Otter. We wanted to add=
=20
a (Cessna) CitationJet last year, but we couldn=92t take it into the USA, so=
=20
we didn=92t do it,=94 says managing director Paul Gravel. SVG and other=20
Caribbean regional hope that a transition to a civil aviation authority=20
will bring a change to DCA regulations governing pilot duty limitations.=20
The pilot duty limitation differences between the USA and the OECS are=20
inequitable, says Gravel, noting that a flightcrew working for American=20
Eagle from San Juan may operate for 14 hours a day, whereas flightcrew=20
working for Liat or Caribbean Star is permitted only to operate nine and a=
=20
half hours a day. =93This effectively means that a US carrier can employ 47=
=20
percent fewer pilots to achieve the same amount of work,=94 says Gravel.=
 =93For=20
an OECS airline that employs 90 pilots, the savings incurred by reducing=20
the number of pilots by one-third would equate to $32 million over 10=20
years.=94 The millionaire owner of Liat=92s biggest rival, Caribbean Star,=
 has=20
managed to strategically bypass Category 2 restrictions. Allen Stanford=20
founded Caribbean Sun and based it in Category 1-rated Puerto Rico. He=20
envisages Caribbean Sun connecting with Caribbean Star to provide one-stops=
=20
throughout the region, posing competition to American Eagle. Meanwhile,=20
Stanford is moving Caribbean Star=92s Antigua headquarters to St Kitts,=
 where=20
there are more relaxed =93route rights and a host of economic benefits=94,=
 says=20
Caribbean Star chief executive Paul Moreira. Stanford=92s organisation also=
=20
plans to redevelop St Kitts Robert L Bradshaw Airport and create a=20
fixed-base operation to handle private jets.

Lack of co-operation

At least part of the long-running crisis in the Caribbean air transport=20
industry is due to a lack of co-operation, experts say. Caribbean carriers=
=20
are generally owned in part or wholly by the indigenous island states and=20
each country is proud and protective of its own airline. In Miami, some=20
small Caribbean airlines operate limited daily services to the islands, but=
=20
refuse to even share the same booths at the airport. =93Instead of sharing=
=20
costs, they try to kill each other,=94 says Carlos D=E1vila, the director of=
=20
transport for the Association of Caribbean States (ACS), a political body=20
that helps guide policy about trade, tourism and transport throughout the=20
region. Caribbean nations have never signed a multilateral aviation accord=
=20
that would give the airlines broad blanket rights to fly between each=20
island, fly across territories without landing, making stops for=20
non-traffic purposes and operate with third, fourth and fifth freedom=20
rights. D=E1vila hopes the fall-off in bookings will force ACS members to=20
agree in principle to a multilateral aviation accord this summer. =93We need=
=20
to do it. With the crisis in Iraq, the tourism sector is going to suffer,=20
especially with a decrease in the number of bookings,=94 he says. Even with=
=20
unanimous ACS member agreement, however, such an accord cannot be put into=
=20
effect until one-third of individual island governments ratify it. Although=
=20
airline officials have long paid lip service to plans for airline=20
co-operation, the most significant teaming to date has been that of Liat=20
and its minority stakeholder BWIA, a partnership that has been limited at=20
best. With both companies in need of fresh financial assistance from the=20
government, Caribbean Community leaders have begun a dedicated push for a=20
more formal tie-up between the two airlines.

John Gilmore, the founding member of the Air Jamaica Acquisition Group that=
=20
negotiated the purchase of Air Jamaica from the Jamaican government, says=20
Air Jamaica, BWIA and Liat =93need to be merged into a single organisation=
=20
for scheduling and planning. I would assume that Cayman Airways and=20
Bahamasair would probably participate as well, since they are relatively=20
small and they both lose money. Every bailout (the Caribbean governments=20
give), the always say =91it=92s the last one=92. They have to come up with a=
=20
solution.=94 But Caribbean airline executives are sceptical about a merger.=
=20
=93Regional integration will never work because West Indians can never work=
=20
together. Each one will want to be the boss,=94 says Gravel. =93How can they=
=20
help each other if they are both bankrupt? Liat and BWIA have been cutting=
=20
each other=92s throats for years.=94 Air Jamaica chief executive Chris Zacca=
=20
adds: =93We are not interested in a merger. We would be much more interested=
=20
in functional co-operation, including schedules and codesharing as well as=
=20
accounting and some technical co-operation and purchasing.=94 A Trinidad and=
=20
Tobago-funded study into the feasibility of a merger is due to be released=
=20
in May. Whether Liat will be able to stay afloat to see such a merger come=
=20
to fruition remains to be seen. For 46 years, the regional has been the=20
backbone of the transport system between the islands of the eastern=20
Caribbean, operating Bombardier Dash 8 turboprops. But the economic=20
downturn, coupled with competition from rival Caribbean Star, has left Liat=
=20
in need of $37 million in investment over the next year. Even though Liat=20
has initiated cost cuts across the board, without new funds, says chief=20
executive Garry Cullen, the carrier faces aircraft repossession and will=20
have difficulty in paying its debts to Bombardier, GE Capital Aviation=20
Services and Pratt & Whitney.

Privatisation plea

The former prime minister of Saint Vincent and the Grenadines, Sir James=20
Mitchell, says governments must stop bailing out cash-strapped Caribbean=20
carriers and seek to privatise them. =93The Caribbean governments are just=
=20
pouring money into the (region=92s) airlines without demanding serious=20
restructuring,=94 he says. Like BWIA and Liat, Air Jamaica is also turning=
 to=20
the government for assistance. The carrier needs up to a $30 million=20
government is likely to demand a debt for equity swap in the deal. Air=20
Jamaica will remain majority owned by private shareholders, says Zacca. He=
=20
says the carrier, which has pulled down a chunk of its US-Caribbean=20
schedule and initiated layoffs, is confident that after the war, the=20
carrier will recover. =93I feel strongly that when our yields come back,=20
without fleet rationalisation, and with other cost-cutting measures that we=
=20
have been working towards over the last few years, we would be in excellent=
=20
position to be profitable,=94 says Zacca. The company hopes to eventually=20
expand its codeshare with Delta, and launch services to new US=20
destinations, once a newly signed USA-Jamaica open skies agreement goes=20
into effect in the next few months.

***************************************************
The owner of Roger's Trinbago Site/TnTisland.com
Roj (Roger James)

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*********************************************************

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